IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CRI 2010-404-256

IN THE MATTER OF	an appeal from the Determination of the
District Court at Auckland

AND

IN THE MATTER OF	Section 107(3) of the Summary
Proceedings Act 1957

BETWEEN	DEPARTMENT OF INTERNAL AFFAIRS
Appellant

AND	TV WORKS LIMITED Respondent

Hearing:	15 November 2010

Counsel:	R McCoubrey and S Cohen-Ronen for Appellant
J R Billington QC and J Edwards for Respondent

Judgment:	17 November 2010

JUDGMENT OF RONALD YOUNG J

Introduction

[1]       The  Gambling  Act 2003  prohibits  publicising  or  promoting  gambling  or gambling  operations  outside  New Zealand  (s 16).     The  allegation  against  the respondent   in   the   District   Court   is   that   it   breached   s 16   by   broadcasting advertisements for an Asia Pacific Poker Tour (“APPT”) in contravention of the
Gambling Act.

DEPARTMENT OF INTERNAL AFFAIRS V TV WORKS LIMITED HC AK CRI 2010-404-256  17
November 2010

[2]       In the District Court the Judge concluded that the advertising for the APPT on two television channels owned by TV Works Limited (TV3 and C4) was not publicising    or    promoting    gambling.        He    therefore    dismissed    the    four relevant informations.

[3]       This appeal by way of case stated posed the question identified by the District

Court Judge as to whether his decision was erroneous on a point of law, in particular:

Did I correctly interpret the definition of gambling in s 4 of the Gambling
Act so as to exclude the APPT from it?

Facts

[4]       I adopt a description of the APPT contest as described by the District Court

Judge:

[20]      APPT stands for the Asia Pacific Poker Tour. There are two ways of participating on this tour.  One is to pay a sum of money to compete.  The other is to qualify by demonstrating that one has the necessary skill by using the  Pokerstars.net  software  and  using  PokerStars  frequent  player  points. This allows a player to participate in the tournament without the payment of the entrance fee.

[21]      There was some question as to whether or not the APPT tournaments involved gambling.  Certainly they involve poker.  The process, as described by Mr Rasheed, is as follows.

[22]      One  qualifies  for  play  at  an  APPT  tournament  by  paying  the requisite entry fee or by acquiring qualification through the utilisation of the Pokerstars.net software.  It goes without saying that one must indicate one’s interest in participating in the tour, using Pokerstars.net software. Qualification does not automatically happen.  Upon payment of the fee, or upon qualifying via Pokerstars.net, one is assigned a number of chips.  The number of chips bear no relationship to the entry fee.  All players start with the same number of chips.   Players then engage in a number of rounds involving a number of games of poker.  Those who win the most number of games by acquiring the greatest number of chips from other players become the winners and a prize pool is shared between the top 10 players.  When asked if there were any money bets on the side, Mr Rasheed indicated that there were not.   The tournament is in the nature of a competition where prizes are awarded to winners, although those prizes bear no relationship to the  number  of  chips  that  a  potential  winner  might  have  other  than  to determine his ranking for the purposes of a prize.

[5]       The  Judge  identified  why  he  considered  that  the  APPT  tournament  and therefore the advertisement was not gambling nor promoting gambling as follows:

[117]    I do not consider that the way in which the APPT is structured amounts to gambling.   It does not involve the payment of consideration based upon the outcome of the game.  It involves the splitting of a sum of money derived from payment of entry fees between the winning players. Although poker is usually associated with some form of gambling, because players in the Tournament do not make side bets on the outcome of each hand that element of wagering upon the outcome, or paying consideration or a stake, is not present.

[118]    It is therefore my view that the element of gambling is absent from the charges involving APPT.  For that reason, the people who are operating the tournament are not, in fact, gambling operators.  That is because they are not, on this occasion, actually conducting gambling.  They are conducting a competition involving the game and play of poker.   For that reason, the charges    contained    in    informations    numbered    080045055585    to
080045055590  must  be  dismissed.    If  I am wrong,  however,  there  still remains the outstanding issue of whether or not the pokerstars.net advertisements  promoted  a  gambling  operator  outside  New Zealand  or amounted to the publication or promotion of gambling outside New Zealand.

Legislation

[6]	Section 4 of the Gambling Act defines “overseas gambling advertisement”

and “gambling” in this way:

overseas gambling advertisement means a form of communication that— (a)	publicises  or  promotes  gambling  that  is  outside  New
Zealand  or  a  gambling  operator  who  is  outside  New
Zealand; or

(b)	is  reasonably  likely  to  induce  persons  to  gamble  outside
New Zealand

gambling —

(a)        means paying or staking consideration, directly or indirectly, on the outcome of something seeking to win money when the outcome depends wholly or partly on chance; and

(b)	includes a sales promotion scheme; and

(c)	includes bookmaking; and

(d)       includes betting, paying, or staking consideration on the outcome of a sporting event; but

(e)        does not include an act, behaviour, or transaction that is declared not to be gambling by regulations made under section 368

[7]       The purpose of the legislation is identified in s 3 in this way:

3          Purpose

The purpose of this Act is to—

(a)        control the growth of gambling; and

(b)	prevent  and  minimise  the  harm  caused  by  gambling,  including problem gambling; and

(c)        authorise some gambling and prohibit the rest; and

(d)        facilitate responsible gambling; and

(e)        ensure the integrity and fairness of games; and

(f)        limit opportunities for crime or dishonesty associated with gambling;
and

(g)        ensure that money from gambling benefits the community; and

(h)	facilitate community involvement in decisions about the provision of gambling.

Submissions and discussion

[8]       The respondent submits that in accordance with s 6 of New Zealand Bill of Rights Act 1990 (“BORA”) , the Gambling Act should as far possible be interpreted as consistent with s 14 of BORA (right to freedom of expression).  In combination with the fact that this is a criminal prosecution this means, the respondent says, that the definition of gambling should be strictly construed.

[9]       The   respondent’s   essential   submission   is   summarised   in   its   written submissions in this way:

... the APPT Tournament is not gambling as defined in the Act because the players can qualify for free or pay an entry fee, to compete for a purse, and are  not,  in  terms  of  the  definition  paying  a  stake  on  the  outcome  of something to win money.   The distinction being, it would be gambling to take bets on who might win the tournament but it is not gambling to compete in the tournament, for a prize pool in the manner that golf and tennis players and other professional sports people so compete.  The entry fee and chips are just a means of competing.  They are not “gambling” as the prize is defined. The prizes depend on placing in the tournament.

[10]     The  respondent  stresses  that  the  chips  given  to  the  contestants  do  not represent  money  being  played  for  and  so  money  is  not  being  wagered  on  the outcome as required by the definition of gambling.  The respondent says that the law and facts of this case are analogous to a United States authority:   Humphrey v Viacom     Inc     and     Ors,     United     States     District     Court,     New Jersey,
2:06-cv-02768-DMC-MF, 20 June 2007, Judge D M Cavanaugh.

[11]     In that case participants managed virtual teams of professional players.  They paid a fee to buy a sports team and related services.  At the end of the competition the managers of the best teams are awarded prizes.  The prizes are known before the competition begins and do not depend upon the number of participants or the amount of registration fees received by the organiser.  This competition was alleged to be in violation of a number of relevant state gaming laws.

[12]     The  Judge  in  Humphrey  identified  a  number  of  US  authorities  that distinguished  between  what  was  said  to  be  competing  for  a  prize  as  against gambling.  Those authorities suggested that gambling involves money which belongs to the “gambler” where the other contestants have a chance to win that money. Playing for a prize is where the money or prize belongs to the person running the competition who is obliged to pay the prize money to the winner.

[13]     The respondent’s  case is that what  APPT is running and the respondent advertising is playing poker for a prize not gambling.  When the poker player pays his entry fee it is no longer his money.  The APPT is obliged to pay the winners the prize money promised.

[14]     I do not consider that this authority provides real help in interpreting the New Zealand statute.  The relevant part of the New Jersey statute (and illustrative of other states’ statutes) defines gambling as “wages, bets, or stakes made to depend upon any race or game, or upon any gaming by lot or chance, or upon any lot, chance, casualty or unknown or contingent event”.

[15]     As can be seen the definition is concerned only with direct wages or bets on a game of chance.  The New Zealand definition in s 4 is much wider.   It covers the payment of a sum of money directly or indirectly on the outcome seeking to win.

[16]     The respondent says further that Parliament could not have intended that the payment of an entry fee into a competition where players then compete for prize money (based in part on the entry fee) be defined as gambling.  Counsel pointed out that such “competitions” are common throughout New Zealand sports clubs.   The members of a club pay an entry fee for a particular competition.   Prize money is made up from the entry fee.  The winner(s) take the prize money.  Although mostly based on skill given this is often sport an element of chance exists in most such competitions.

[17]     In Humphrey D M Cavanaugh J identified the position in America in this way:

Courts throughout the country, however, have long recognised that it would be “patently absurd” to hold that “a combination of an entry fee in a prize equals gambling,” because if that were the case, countless contests engaged in every day would be unlawful gambling, including “golf tournaments, bridge tournaments, local and State rodeos or fair contests ... literary or essay competitions, ... livestock, poultry and produce exhibitions, track meets, spelling bees, beauty contests and the like” and contest participants and sponsors could all be subject to criminal liability.

[18]     As to this suggested “patent absurdity” I accept it is difficult to understand why Parliament would have wished to declare these activities “gambling”.  However I consider that on the facts of this case it is impossible to interpret the activity in any other way.   The question is not whether the contestants in such circumstances are playing for a prize.  They clearly are.  The question is whether what they are doing is also gambling.  And that depends exclusively upon the definition in s 4 of the Act.

[19]     For reasons I will give I consider that the activity described here is clearly gambling.  Further, as the appellant pointed out the fact these sporting competitions ([17]) may constitute gambling may do nothing more than impose on the organisations a form of light handed regulation.   Compliance with the regulatory regime under the Gambling Act would ensure that such sports club “gambling” was unobjectionable.

[20]     The relevant statutory context for these observations are:

9	Gambling prohibited

(1)	Gambling is prohibited and illegal unless it is—

(a)        authorised by or under this Act and complies with this Act and   any   relevant   licence,   game   rules,   and   minimum standards; or

(b)        authorised by or under the Racing Act 2003 and complies with that Act and any regulations made under it; or

(c)	private gambling.

(2)	The following types of gambling are prohibited and illegal and are not authorised by and may not be authorised under this Act:

(a)	bookmaking:

(b)	remote interactive gambling.

[21]     Gambling is divided into four classes in the Act.   Section 22 sets out the definition of class one gambling.  This class (as relevant here) requires the turnover of the activity to be returned to those who play the game less the administrative cost and that the prizes not exceed $500.  If these rules are complied with then class one gambling can be conducted without a licence and is lawful.

[22]     Class two gambling involves prizes up to $5,000 (s 24).   The requirements for compliance with class two gambling are more substantial (ss 24, 25).  However I consider these requirements could easily be complied with by most sporting clubs. Compliance would then ensure that no licence would be required (s 26).  Gambling would then be lawful.   Gambling involving larger sums of money is governed by licences pursuant to class three and class four gambling.

[23]     To return to s 4 and to reverse the order prescribed in the definition.   It is common ground that playing poker depends, in part, on chance.  The chance aspect are the cards that are dealt to the player.  It is also common ground that there is a skill factor involved, for example, in the way in which a player bets and the way in which the player chooses to manipulate cards during the course of the game.

[24]     The second requirement of s 4 is that there must be payment of consideration (here alleged to be the money for the entrance fee) on the outcome of some event seeking to win money.  This can be direct or indirect.  The case for the prosecution was that here there was an indirect consideration.  They say that the payment of the entrance  fee  was  an  indirect  consideration  which entitled  entrance  to  the  poker tournament, the object  of which was to win  money.   Thus the payment of the entrance fee was indirect consideration on the outcome of the poker tournament (a game of chance) seeking to win some of the prize money on offer.

[25]     The Judge in the District Court considered an important point was that the payment of the entrance fee bore no relationship to the value of chips allocated to the entrant.  It is difficult to understand the relevance of that point.  To get the allocated number of chips the player has to play a particular entrance fee.  And so the number of chips the player has (and all players start with the same number) relates directly to the cash paid.  The chips themselves are not allocated a specific value although all are of the same value.  Nor in this game is it possible to buy more chips than the entrance fee allows.  This is presumably a way of ensuring that all players start the tournament on an even footing.

[26]     The use of the chips and how they are reflected in the entrance fee does not seem to me to be the pivotal question.  The purpose of the tournament is to find the best and luckiest players.  This is done by starting all the players off on the same footing with the same number of chips.  The best players, and given that poker is partly a game of chance the luckiest players, will win other players’ chips.  At the end of the tournament the players’ chips are totalled.   If a player is in the top ten he/she is eligible for a prize.  The more chips the greater the prize.

[27]     Here the entrance fee in part makes up the prize pool which is shared by the top ten players.  The number of chips won during the tournament reflects the players placing and thereby his/her prize money.  The entrance fee is therefore the payment of money which is indirectly staked on the outcome of the poker game trying to win money in a game depending partially on chance, the definition of gambling in s 4.

[28]     Although some contestants qualify to play by skill rather than the payment of an  entry fee those who  do  pay are  gambling.    Thus  what  is  advertised  is  still gambling even if not all contestants are gambling.

[29]     The answer to the case stated question posed is therefore “no” for the reasons given.

[30]     I refer this matter back to the District Court for further consideration of the respondent’s guilt in view of my answer to the question.  Although not relevant to this appeal I have considerable sympathy for the position the respondent found itself in.   The legislation is far from clear and others have thought the respondent was acting lawfully.   The respondent proceeded with the advertisements genuinely believing it was acting lawfully.   Whether any penalty should be imposed in the District Court in view of these circumstances will be a matter for the Judge if the
charges are found proved.

Ronald Young J

Solicitors:
R McCoubrey, Associate, Meredith Connell, Auckland, email:  robin.mccoubrey@meredithconnell.co.nz
J R Billington QC, PO Box 4338, Auckland, email: jb@shortlandchambers.co.nz
J Edwards, Russell McVeagh, PO Box 8, Auckland